PROFUNDS RISING RATES FUNDS RISE WITH BOND YIELDS -- SHORT REAL ESTATE FUND MOVES INVERSELY TO REITS

PROFUNDS RISING OPPORTUNITY 10 FUND ... I wrote an article yesterday (Thursday) about rising long-term interest rates and why that was bearish for bond funds. That's because traditional bond funds (which are based on the price of bonds) fall when bond yields are rising. The 10-year T-Note yield (TNX) closed over 5% this week for the first time in four years. The 30-year T-bond yield cracked 5% even earlier. ProFunds offers a couple of mutual funds that move inversely to bond prices. In other words, they move in the same direction as long-term rates. Back on January 27 I wrote about the ProFunds Rising Rates 10 Fund (RTPIX). I explained that this fund was tied directly to the yield on the 10-year T-note yield which was starting to rise at the time. The value of the rising rates fund rises as rates rise. Chart 1 is an updated version of the RTPIX. It was just climbing above its 50-day average when I first mentioned it in January (blue circle). It has since broken through its 2005 highs along with the 10-year yield. Its relative strength line (versus the S&P 500) has just hit a new 2006 high. The second fund is tied to the 30-Treasury bond yield.

Chart 1

PROFUNDS RISING RATES BOND FUND ... Chart 2 shows the Profunds Rising Rates Fund (RRPIX) rising sharply as well. This fund is based in the yield of the 30-Treasury Bond. One of the reasons that it's rising so fast is that it has slightly more leverage than the fund based on the 10-year T-note yield. This fund is meant to move 125% of the value of the 30-bond yield. That means that it actually rises faster than the bond yield. That also explains why it's doing so well even though the 30-year yield has risen less than the 10-year yield. Notice that it's relative strength line has turned up as well. No need to fret about rising long-term rates. These two funds offer a way to profit from that trend.

Chart 2

PROFUNDS SHORT REAL ESTATE FUND RISES ... Thursday's market message also dealt with how rising rates were hurting everything tied to housing and real estate. I showed a chart of a REIT fund falling below its 50-day moving average. ProFunds also has a Short Real Estate Fund (SRPIX). The fund moves "inversely" to the price of a REIT Index. Chart 3 is an exact mirror image of the chart I showed yesterday. The SRPIX has just risen above its 50-day moving average. Notice that its relative strength ratio has just broken a six-month down trendline. If you believe (as I do) that rising rates will hurt the REIT group, this mutual fund allows you a way to profit if REITs continue to fall -- or a way to hedge against drops in your real estate portfolio.

Chart 3